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Chapter 24: Q19RQ (page 1355)
What does ROI measure?
ROI measures percentage return earned on the average total assets of the business entity.
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Consider the following key performance indicators, and classify each according to the balanced scorecard perspective it addresses. Choose from financial perspective, customer perspective, internal business perspective, or learning and growth perspective.
a. Number of employee suggestions implemented
b. Revenue growth
c. Number of on-time deliveries
d. Percentage of sales force with access to real-time inventory levels
e. Customer satisfaction ratings
f. Number of defects found during manufacturing
g. Number of warranty claims
h. Return on investment
i. Variable cost per unit
j. Percentage of market share
k. Number of hours of employee training
l. Number of new products developed
m. Yield rate (number of units produced per hour)
n. Average repair time
o. Employee satisfaction
p. Number of repeat customers
Consider the following condensed financial statements of Forever Free, Inc. The company’s target rate of return is 40%.
Forever Free, Inc | |
Income Statement | |
For the year ended December 31, 2018 | |
Net Sales revenue | \( 3,500,000 |
Cost of Goods Sold | 2,200,000 |
Gross Profit | 1,300,000 |
Operating Expenses | 950,000 |
Operating Income | 350,000 |
Other income and (expenses) | |
Interest Expense | (27,000) |
Income before income tax expense | 323,000 |
Income tax expense | 113,050 |
Net Income | \) 209,950 |
Forever Free, Inc | ||
Income Statement | ||
For the year ended December 31, 2018 | ||
2018 | 2017 | |
Assets | ||
Cash | \( 64,000 | \) 52,000 |
Accounts Receivable | 49,200 | 17,800 |
Supplies | 1,000 | 400 |
Property, Plant, and Equipment, net | 331,800 | 229,800 |
Patents, net | 135,000 | 119,000 |
Total Assets | \( 581,000 | \) 419,000 |
Liabilities and Stockholders’ Equity | ||
Accounts Payable | \( 17,000 | \) 19,000 |
Short-term Notes Payable | 136,000 | 42,000 |
Long-term Notes Payable | 184,000 | 114,500 |
Common Stock, no Par | 232,000 | 242,000 |
Retained Earnings | 12,000 | 1,500 |
Total Liabilities and Stockholders’ Equity | \( 581,000 | \) 419,000 |
Requirements
1. Calculate the company’s ROI. Round all of your answers to four decimal places.
2. Calculate the company’s profit margin ratio. Interpret your results.
3. Calculate the company’s asset turnover ratio. Interpret your results.
4. Use the expanded ROI formula to confirm your results from Requirement 1. Interpret your results.
5. Calculate the company’s RI. Interpret your results.
Padgett Company has compiled the following data:
Net sales revenue $1,000,000
Operating income 60,000
Average total assets 400,000
Management’s target rate of return 12%
Compute the following amounts for Padgett:
Preparing a financial budget—budgeted income statement and balance sheet
Bradley Company has the following post-closing trial balance on December 31, 2018:
The company’s accounting department has gathered the following budgeting information for the first quarter of 2019:
Budgeted total sales, all on account $ 305,000 Budgeted direct materials to be purchased and used 32,000 Budgeted direct labor cost 12,500 Budgeted manufacturing overhead costs:
Variable manufacturing overhead 2,100 Depreciation 1,300 Insurance and property taxes 1,350 Budgeted cost of goods sold 72,000 Budgeted selling and administrative expenses:
Salaries expense 7,000 Rent expense 2,000 Insurance expense 1,100 Depreciation expense 550 Supplies expense 15,250 Budgeted cash receipts from customers 263,500 Budgeted income tax expense 41,000 Budgeted purchase and payment for capital expenditures (additional equipment) 43,000
Additional information:
a. Direct materials purchases are paid 70% in the quarter purchased and 30% in the next quarter.
b. Direct labor, manufacturing overhead, selling and administrative costs, and income tax expense are paid in the quarter incurred.
c. Accounts payable at December 31, 2018 are paid in the first quarter of 2019. Requirements
1. Prepare Bradley Company’s budgeted income statement for the first quarter of 2019.
2. Prepare Bradley Company’s budgeted balance sheet as of March 31, 2019
Usually, which outweighs the other in decentralization—advantages ordisadvantages?
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